Sweden

Author: | Published: 1 Jan 2000
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On July 1 1999 the new Swedish Recommendation concerning Public Offers for the Acquisition of Shares entered into force. The new recommendation includes a mandatory bid rule that applies to anyone who obtains 40% or more of the total number of votes in a Swedish stock market company as a result of purchase, subscription, conversion or any other form of acquisition of shares in the company.

Introduction

In general, rules regarding public offers on the Swedish stock market are not set out in laws or regulations. Instead a self-regulating regime applies. The main body of these rules in Sweden is the Recommendation concerning Public Offers for the Acquisition of Shares (the Take-over Recommendation) issued by the Swedish Industry and Commerce Stock Exchange Committee whose principals are the Stockholm Chamber of Commerce and the Federation of Swedish Industries. The first Take-over Recommendation was published in 1971 and incorporated the basic principles of the London City Code on Take-overs and Mergers. The present Take-over Recommendation entered into force on July 1 1999 and replaced the previous recommendation of 1988 and contains several new rules, whereof the mandatory bid rule is the most discussed. Mandatory bids are a new factor in Sweden and has been subject to lengthy discussions for several years, by both the Swedish legislators and the parties active on the Swedish capital market.

Area of application

The Take-over Recommendation applies to any Swedish or foreign legal entity or physical person (the buyer) that makes a public offer to shareholders in a Swedish company which has issued shares listed on a stock exchange or authorized marketplace in Sweden, or when it concerns the mandatory bid rule, acquires shares in such company. The Take-over Recommendation is binding for all companies listed on the Stockholm stock exchange as part of the listing agreement with the OM Stockholm Exchange.

The Securities Council

The Industry and Commerce Stock Exchange Committee (NBK) has found that it is neither appropriate nor feasible to draw up provisions, which cover every conceivable situation. Since, eg, the introduction of mandatory bids may have a considerable financial impact, NBK has also found that this calls for a reference in the Take-over Recommendation to an entity which is in the position to provide authoritative rulings on the application of provisions concerning public offers. Against this background the Securities Council (established in 1986 by the principals of NBK) has been allotted this role. The Securities Council may grant exemptions from the provisions of the Take-over Recommendation and may also make ruling as regards the manner in which the Take-over Recommendation is to be interpreted.

Mandatory bids

Pursuant to the Take-over Recommendation, anyone who has less than 40% of the total number of votes in a company must make a public offer for the acquisition of all the remaining shares issued by the target company (mandatory bid), if the legal entity or physical person alone or together with a related party obtains 40% or more of the total number of votes in the company (in this context, it should be noted that Swedish companies could have different voting rights on different classes of shares). Such holding can be a result of a purchase, subscription, conversion or any other form of acquisition of shares in the target company. A related party is, as regards the 40% threshold, a company within the same corporate group as the buyer, the buyer's spouse, cohabitant or children who are minors or any other person or entity with whom an agreement has been reached regarding the use of the coordinated exercise of voting rights to achieve a long-term joint position as regards management of the company.

The obligation to make a mandatory bid no longer applies if the buyer divests shares within four weeks of the acquisition so that the shareholding amounts to less than 40% of the votes in the target company, either alone or together with shares held by a related party.

As stated above the Securities Council may exempt a buyer from the obligation to make a mandatory bid under certain circumstances. Such exemption may be granted if, among other things, the reason for change in the relative proportion of the total number of votes are outside the buyer's control, or the reasons for new ownership status may be such that a mandatory bid is not justified. The Securities Council has up to this date granted exemptions in few matters, among other things, the Securities Council matter no. 1999:12 British Steel – Avesta Sheffield and matter no. 1999:13 ICB Shipping.

An interesting matter where the question to grant an exemption was raised is the matter no. 1999:9 ICB Shipping. The main rule under the Take-over Recommendation is that if a related party status as described above is established and the parties jointly achieve a holding of 40% or more of the votes, a mandatory bid must be made if one of the parties thereafter acquires one or more shares in the target company. However, the Securities Council found in the matter no. 1999:9 ICB Shipping that if such acquisition is made from a person within the same group of related parties as the buyer, and thus not affect the control by this group over the target company, the obligation to make a mandatory bid is not released. But, if one person in that group acquires additional shares from another person within the group that this person thereafter, alone, holds 40% or more of the votes in the target company, the buyer is required to make a mandatory bid (the Securities Council case no. 1999:9 ICB Shipping).

Press statement and offer document

When a buyer acquires shares in the target company and thereby attains a holding of 40% or more of the votes, the buyer must announce his shareholding immediately and state his intentions as regards a subsequent public offer in a press statement. Unless the buyer divest shares in accordance with what has been stated above, or the Securities Council has granted an exemption, the buyer must issue a press statement within four weeks from the previous announcement. This press statement must announce that a mandatory bid is being made and further contain, among other things, the following information:

  • the main terms for the bid;

  • information as to the number and the voting rights of shares which the buyer owns or otherwise controls in the target company;

  • an explanation of the reasons of the bid; and

  • a timetable for the implementation of the bid.

In addition, the buyer must prepare an offer document in accordance with the provisions set forth in the Take-over Recommendation. Further the buyer must distribute the offer document (or an information brochure) to all shareholders covered by the bid whose postal addresses are known, and to stock exchanges and authorized marketplaces on which the buyer's or the target company's shares are listed and, to an appropriate extent, to the news media.

If the buyer has divested shares within four weeks in accordance with what has been stated above and hence an obligation to make a mandatory bid no longer applies, this must be announced immediately.

Terms of the bid

As regards the terms of the bid, the general provisions in the Take-over Recommendation applies where relevant. However, among other things, the following certain provisions applies to a mandatory bid in contrary to a voluntary public offer:

  • the mandatory bid must cover all shares and must always contain an alternative under which all shareholders receive compensation in the form of cash;

  • an extension of the period of acceptance of the cash bid must not result in postponement of payment to owners who have already accepted the bid, and

  • the sole condition which the buyer is entitled to make for implementation of the mandatory bid is receipt of official approval, if required.

A mandatory bid must further include securities, other than shares, issued by the target company if the market price of these securities would be significantly affected if the listing of the shares in the target company should cease. The price offered in the mandatory bid must normally be the highest price that the buyer or any related party has paid for shares in the target company during the six months prior to the acquisition. Further, the period for acceptance of the mandatory bid must be at least three weeks. The definition of a related party as regards the price and other aspects (than to decide if the holding of shares amounts to the threshold or not) is somewhat more extensive than what has been described above. In addition to the cases described above the buyer is equated with any other person or entity co-operating with the buyer, pursuant to an agreement or in any other way, in the respects covered by the Take-over Recommendation.

Finally, the obligation to make a mandatory bid does not apply if the buyer has reached the threshold as a consequence of a voluntary public offer for all shares.


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